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Question added to topic MoneyJune 13, 2008

Should I care about how my soon-to-be business partner comes up with the money to invest?

My business partner is thinking of taking on a low-interest-rate (till the balance is paid off) credit card loan to fund our startup. Should I be concerned?
You should be concerned with how your soon-to-be business partner comes up with the money to invest in your business. In particular because you used the words "to fund OUR startup" (emphasis mine).  Does that mean you are not contributing funds to the startup? 

If you are not, then your partner may want you and/or the business to agree to be financially responsible for repaying 50 percent of the loan.  Unless you are providing something else of equivalent value (e.g., intellectual property, customer lists, etc.) to the business--or expect to be less than a 50 percent partner--this could lead to misunderstanding and resentment if not aired and documented fully before your partner takes out the loan. 

The easiest way to deal with it is to discuss your partner's expectations for repayment.  Also, if the loan will be his/her responsibility alone, you may want to ask whether the loan will put too much of a drain on his/her personal finances. You want to be sure that each of you has the wherewithal to withstand lean times without putting too much pressure on the business in its early stage.

Nina L. Kaufman, Esq. is an award-winning New York City attorney, edutainer and author. Under her Ask The Business Lawyer brand, she reaches thousands of entrepreneurs and small business owners with her legal services, professional speaking, information products, and LexAppeal weekly ezine. She also writes the Making It Legal blog.

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